Economics
Fed policy (reading the data correctly).
In what may be the biggest economic news this week, the Fed met on Tuesday and voted to lower both the Fed Funds rate and the discount rate by .25%; and in the accompanying ‘guidance’ statement, it expressed a balanced concern over recession and inflation--the problem is that neither recession nor inflation are the primary risks to our economic system right now--liquidity (a freeze up in the commercial paper market which I have alluded to several times in recent weeks) is. To be sure, the ‘guidance’ statement mentioned difficulties in the financial markets several times--but the Fed neither did anything nor implied that it would do anything to overcome this problem.
This seeming lack of concern over the trouble US businesses are having financing their short term credit needs is a major surprise to me (in fact as you know, I had assumed from recent Fed statements as well as the positive numbers on inflation, that the Fed had all the flexibility it needed act aggressively to solve this problem and would) and even worse, I fear it will cause a significant loss of investor confidence in the Fed--something that I thought that it had worked hard to re-gain following the rocky start of the Bernanke regime.
As you know, I had come to believe that the Fed had fixed its original communications/Phillips Curve bias problems and consequently, it would not be an obstacle to economic growth as the economy struggled through a ‘soft’ landing; regrettably it appears that the Fed either hasn’t resolved these issues or has had some sort of second thought. That said, I want to wait another day as this latest Fed move/statement gets digested before I pass final judgment--
--in fact, breaking news, as I am writing this, CNBC is reporting that an ‘undisclosed’ Fed source said that the Fed was actively considering other tools to deal with the liquidity problem and would announce them soon.
Let me say that if the Fed (1) is scrambling because of the Market’s reaction to their paltry, seemingly unconcerned effort to deal with credit/banking crisis then while it is better than not reacting, it nevertheless reinforces the notion that prior to their meeting that they had not read the data correctly or (2) had been considering those tools but somehow neglected to mention them as part of the ‘guidance’ statement, then they clearly haven’t yet figured out the communications process.
Bottom line, whatever the reason for the Fed’s under-response to the growing lack of corporate liquidity, the result (or lack thereof) in my opinion raises the probability that businesses will be unable to finance working capital whether it’s from the lack of Fed action or from the lack of investor confidence in the Fed; either way, unless something dramatic soon occurs, the likelihood of the economy going into a recession has probability increased.
Politics
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International War Against Radical Islam
An analysis of Iranian strategy by an international expert:
http://counterterrorismblog.org/2007/12/misestimating_irans_nuclear_st.php
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Subscriber Alert
The stock price of Fortune Brands (FO-$74) has fallen below the upper boundary of its
The stock prices of Realty Income Trust (O-$27) and AJ Gallagher (AJG-$25) have fallen below the upper boundary of their respective
The stock price of Franklin Resources (BEN-$114) has fallen below the upper boundary of its
News on Stocks in Our Portfolios
General Electric raised its quarterly dividend per share from $.28 to $.31 and announced a 3 year $15 billion stock buy back.
A positive write up on Schwab (Aggressive Growth Portfolio):
http://www.thestreet.com/p/rmoney/wallstreet/10393935.html
US Bancorp (High Yield Portfolio) is raising its quarterly dividend per share from $.40 to $.425.
More Cash in Investors’ Hands
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